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Edited Transcript of CNNX earnings conference call or presentation 2-Aug-18 3:00pm GMT

Q2 2018 CNX Midstream Partners LP Earnings Call

Canonsburg Oct 9, 2018 (Thomson StreetEvents) -- Edited Transcript of CNX Midstream Partners LP earnings conference call or presentation Thursday, August 2, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald W. Rush

CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC

* Nicholas J. DeIuliis

CNX Midstream Partners LP - Chairman of the Board & CEO of CNX Midstream GP LLC

* Tyler Lewis

CNX Midstream Partners LP - VP – IR

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the CNX Midstream Partners Q2 2018 Earnings Conference Call. (Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

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Tyler Lewis, CNX Midstream Partners LP - VP – IR [2]

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Great. Thank you, and good morning, everybody. Welcome to CNX Midstream's second quarter conference call. We have in the room today Nick DeIuliis, our CEO; Don Rush, our Chief Financial Officer; and Tim Dugan, our Chief Operating Officer.

Today, we'll be discussing our second quarter results, and we've posted an updated slide presentation to our website. As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we've laid out for you in our press release today as well as in our previous Securities and Exchange Commission filings. We'll begin our call today with prepared remarks by Nick followed by Don, and then we will open the call up for Q&A where Tim will participate as well.

With that, let me turn the call over to you, Nick.

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Nicholas J. DeIuliis, CNX Midstream Partners LP - Chairman of the Board & CEO of CNX Midstream GP LLC [3]

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Good morning, everybody. During the quarter, we closed on the previously announced exchange agreement with HG Energy. As many of you are aware, as part of the transaction, we added 52 additional well commitments, a 20-inch high-pressure pipeline and got cash in the door. All these things helped de-risk our 15% distribution growth rate out through 2022 based on conservative assumptions. The distribution growth is based solely on PDPs, minimum well commitments and minimum volume commitments in our Shirley-Pennsboro field, while, at the same time, assuming no drop downs or need to access the capital markets. You might remember when we purchased the Shirley-Pennsboro assets from CNX for $265 million in the first quarter. We also launched $400 million in notes offering to increase our credit -- and then increase our credit facility along with it. All of this was done to de-risk the business and de-risk the distribution growth. Minimizing risk while extending out our distribution growth, that's an awesome combination. And in the end, we've structured the company to thrive under any circumstance.

On the operational front, in the second quarter, the entire CNX Midstream team worked to deliver 1 million manhours with 0 injuries and 0 lost-time accidents. We're extremely proud of that record, as health safety and environmental competence has always been a priority at CNX Midstream. Best-in-class safety performance correlates to efficiency as well as the profitability. And that's actually a good lead into how our operational discipline and greater throughput benefits the bottom line as we achieve record as in low gross per unit operating costs in the quarter as well. There are a handful of initiatives that we've been working on this year that have helped drive those efficiencies, and those efforts include things like reduction in contract workforce and the performance of certain work in-house that used to be farmed out. It also includes enhanced data gathering and decision-making tools through control-room operations, and it also includes the expansion of work by exception instead of work by routine.

With the Shirley-Penns drop and exchange agreement firmly in the rearview mirror, we continue to hit our stride as the sole-sponsor MLP, and we look forward to executing on our development plans in conjunction with CNX and our third-party partners. I'm going to turn it over to Don Rush now. He's going to go through some of the results for the quarter.

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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [4]

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Thanks, Nick, and good morning, everyone. I'm going to walk through the financial results and operational highlights for the second quarter, and Tim will be available to answer questions during Q&A.

Starting out on Slide 3. You can see some of the highlights of the quarter. The second quarter of 2018 was our first full quarter since the Shirley-Penns drop and our average daily throughput for the quarter increased 23% over Q2 2017 volumes. Those volumes drove a 20% increase in adjusted EBITDA over the same period last year. Our cash distribution coverage ratio was 1.3x for the quarter and this is the 13th consecutive quarter we have grown our distributions at our targeted 15% annual growth rate. Also, our net capital expenditures for the quarter were $25 million.

We are increasing our 2018 capital expenditure guidance, net to the MLP to a range of $100 million to $110 million from the prior range of $80 million to $90 million. The increase is primarily a result of accelerating projects from 2019 into 2018 and adding new high rate of return projects to the mix. And a little bit more color on CapEx. We accelerated multiple sizable projects from 2019 into 2018, including several interconnects, compression facilities and a few others that will help de-risk the plan and pull forward value. Also, we've accelerated site construction on several compressor -- compression facilities ahead of the winter months to reduce weather-delay risks and have more efficient project cost. Also, on certain projects, we have ordered and made initial payments on long lead-time equipment with the intent to de-risk the 2019 startup dates for these facilities. We have identified and acted on several new project opportunities that were not part of our 2018 capital budget plan as well. These projects all have high rate of return and also increase our system capacities. The rest of the capital increase is related to a further shift from lease to purchase compression on several new projects. That will result in additional long-term value.

We constantly evaluate the cost of owning versus leasing compression, weighing the upfront capital investment of purchase compression in comparison to the long-term operating expense of lease compression to determine the best overall value for the MLP.

In the end, we're on track to 2018 and the increase to capital guidance is tied to high rate of return projects and initiatives that create value while also de-risking our build-out plans for 2019 and beyond.

With that, I'll hand it back to Tyler.

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Tyler Lewis, CNX Midstream Partners LP - VP – IR [5]

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Great. Thanks. And operator, if you can open the call now for Q&A at this time, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And there look to be no questions at this time, so this will conclude our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

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Tyler Lewis, CNX Midstream Partners LP - VP – IR [2]

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Great. Thank you. And thank you, everyone, for joining us. Look forward to speaking with you again next quarter.

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Operator [3]

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And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.